The client requires a guaranteed minimum offtake.

Who wants a minimum purchase and what they pay for it

The headline says "the buyer wants", but in practice, the demand goes both ways. The supplier raises it when they need to build a line, expand a warehouse, or reserve inputs from their own supplier for a specific customer; a guaranteed volume is a way for them to recoup the investment, even if the customer later buys elsewhere. Conversely, the buyer offers it when they need to be sure that capacity will be available for them and want a better price than a customer who comes on an as-needed basis.

In both cases, a minimum purchase is an exchange of risk for consideration. The party that commits to take or pay assumes the demand risk; the other party provides investment, capacity reservation, price, or a combination in return. When consideration is missing or only implied in the contract, the buyer has a stronger argument in a dispute that it is a penalty for breach, not a price for performance.

For company management, this leads to the first decision: how much of the demand risk is the company willing to assume and what does it want in return. Typically, this is decided based on three numbers – how much the investment or reserved capacity costs, what share of consumption the contract is supposed to cover, and how long the horizon is over which the company can commit. If the minimum purchase is related to a turnkey technology supply, read also Buying a turnkey production line, where we address acceptance and liability for a defective machine.

Six provisions without which take-or-pay does not work

A minimum purchase clause is never written in a single sentence. In practice, it consists of six interconnected provisions, and a weakness in any one of them devalues the others.

Reference volume and period

The basis is an unambiguous volume and an unambiguous period over which it is evaluated. Units (tons, pieces, MWh, percentages of the plan), rounding methods, and whether the volume is calculated per calendar year, contract year, or a shorter period tend to be disputed. The shorter the evaluation period, the less room the buyer has to smooth out fluctuations – and the sooner payment is due. The period is therefore not a technical detail; it is a setting of who bears the seasonality.

If the relationship is built on a framework agreement and individual purchase orders, it must be clear whether the minimum purchase obligates ordering or just paying for the difference. We analyze the difference between a framework and a specific contract in our article on framework agreements under the Civil Code; for take-or-pay, it is essential that an order that never arrives must not mean that the obligation never arose.

What exactly is paid for the uncollected volume

This is where the legal nature of the entire clause is decided. There are two basic structures. First: the buyer pays an agreed amount for the reserved capacity regardless of the actual purchase, and the quantity actually taken is offset against this amount. Second: the buyer has an obligation to purchase, and in the event of a breach, pays an agreed rate for the difference.

Commercially, both structures yield similar results, but legally they do not. The second option is a payment tied to a breach of obligation, which constitutes a contractual penalty (Section 2048 of the Civil Code) with all the consequences we describe in the section on legal limits. The first option is a price, which a court generally does not moderate, but which must be structured from the outset as consideration for a specific performance – capacity that is actually available. The choice between price and penalty should be a conscious decision, not a consequence of how the sentence happened to be drafted.

The difference also has a tax aspect, which is not governed by the name on the invoice. The Court of Justice of the EU, in its judgments in MEO (C-295/17) and Vodafone Portugal (C-43/19), concluded that amounts paid upon early termination of a contract with an agreed commitment period constitute consideration for a service, and are therefore subject to VAT. With take-or-pay, there is a risk of tax reassessment for both parties, and the regime must be verified with a tax advisor.

In practice, the amount of the payment distinguishes what it is intended to cover: only the supplier's fixed costs (depreciation, reserved capacity) or also lost margin. The rate per uncollected unit is usually lower than the full price; how much lower depends on whether the supplier can sell the uncollected volume elsewhere.

Make-up and carry-forward

In long-term relationships, a strict take-or-pay is usually mitigated by two mechanisms: carry-forward, where purchases above the minimum in one period reduce the obligation in the next, and make-up (reconciliation), where paid but uncollected volume can be taken in subsequent periods without further payment. Both should have a time limit after which they expire, and a rule for the final year of the contract when there is nowhere left to carry them forward.

Flexibility band

The buyer usually requests a band within which the volume can fluctuate without penalty (for example, plus or minus a certain percentage of the plan) and the right to adjust the plan for the next period with advance notice. The supplier typically agrees to upward flexibility more easily than downward; the lower limit is what covers the investment.

Force majeure and change of circumstances

The force majeure clause must explicitly state what happens to the minimum volume when the buyer cannot take delivery. The situations you want to cover – loss of own production, sales bans, transport disruptions – need to be listed; the statutory definition of force majeure is narrower, and mere absence of fault is not enough. A general formulation like "the parties shall not be liable for delay caused by force majeure" is insufficient because take-or-pay is not a delay; it is a payment obligation. A change in market circumstances, which we discuss in the section on legal limits, also requires specific regulation.

End of the relationship

The contract should answer three questions: what happens to the uncollected volume upon regular termination, how the obligation is settled upon early termination, and whether there is an exit fee with which the buyer can buy themselves out of the obligation. The exit fee is the most valuable provision of the entire clause for the buyer, and the supplier will typically allow it only in an amount that covers the unpaid portion of the investment.

The other side of the equation: what the supplier guarantees to the buyer

A bilateral take-or-pay means that the supplier bears mirror obligations. If the buyer pays for capacity, the capacity must actually be available – and this is not a given that the law would guarantee, but a provision that must be stated in the contract.

The first of these is a guarantee of availability, in practice referred to as deliver-or-pay: the supplier delivers the volume requested by the buyer within the plan, and in the event of non-delivery, pays a rate per undelivered unit or covers the difference in price for which the buyer procures substitute performance elsewhere. Without this mirror, the buyer is left only with a general claim for breach of contract, meaning they have to prove damages instead of charging the agreed rate.

The second is the pricing mechanism. A minimum purchase for several years without indexation or a price adjustment rule transfers the entire pricing risk to one party; the standard is a link to an input index, a commodity price, or regular price negotiations with a safety net in case the parties fail to agree. The third is information and planning obligations – the buyer submits the purchase plan in advance, the supplier reports capacity limitations. Without these, every dispute over uncollected volume turns into a debate about who knew what and when.

Pre-signing checklist

Before the clause goes for signature, each participant should answer the following questions. The list is general; which answers are decisive for you depends on which of the two parties is investing and how long the commitment is to last – this is assessed by the Czech legal team at ARROWS for each contract individually.

• Is it clear in which units and for what period the minimum purchase is evaluated, and who performs the evaluation?

• Is the payment for uncollected volume structured as a price for capacity or as a penalty for breach? Does the rest of the contract (invoicing, VAT, accounting) correspond to this?

• Is there a make-up or carry-forward mechanism, and does it have a time limit? Is the final year of the contract addressed?

• Does the force majeure clause explicitly state what happens to the minimum volume?

• Does the supplier bear a mirror commitment of availability with a penalty?

• What percentage of the buyer's total consumption does the contract cover and for how long? Does the market share of either party exceed the threshold at which competition law is triggered?

• Is there an exit fee, and is its amount derived from the unpaid investment rather than the remainder of the contract term?

What the counterparty commonly proposes and what is a red flag

Companies that handle long-term supplies well have both sides of the clause and a table of volumes by year in the draft contract from the start; the rate for uncollected volume is negotiated, but its existence is not. In contrast, there are five signs by which a counterparty's proposal can be recognized as one-sided.

The first is a minimum purchase with no mention of investment or capacity. When a supplier requests a commitment but cannot say what they are covering with it, they are buying revenue certainty at the buyer's expense; the question of what specifically this volume is financing should be raised at the very first meeting.

The second is a rate for uncollected volume equal to the full price – the supplier would receive the full price without delivering, and could sell the uncollected volume elsewhere. If such a payment is, by its content, a contractual penalty, a high rate is the prime candidate for judicial reduction and the counterparty will usually abandon it in negotiations as soon as the subject is raised.

The third sign is the absence of make-up rights: a proposal that does not allow carry-forward or subsequent collection of the paid volume transfers all seasonality and demand fluctuations to the buyer.

The fourth is exclusivity hidden in the volume. A minimum purchase set at the level of the buyer's entire consumption is effectively a ban on purchasing from anyone else, just harder to spot. Agreements whose object or effect is the distortion of competition are prohibited by law (Section 3 of the Act on the Protection of Competition under Czech legislation) – however, a negligible impact on competition is not prohibited, and the law also recognizes individual exemptions.

Commission Regulation (EU) 2022/720 on vertical agreements treats such a commitment in the same way. How exclusivity is assessed in distribution is described in our article Distributor breached exclusivity or sells via marketplace.

The fifth is a unilateral right to change the plan or the price. If only one party is allowed to change the purchase plan, or if the supplier is allowed to change the price without limit, the minimum purchase loses its economic sense for the other party, leaving only an obligation to pay.

Where freedom of contract ends

The Civil Code does not recognize take-or-pay as a term; the clause consists of several legal concepts, and a different limit applies to each. Four of them are essential for company management decisions.

Contractual penalty and its reduction

If the payment for uncollected volume is tied to a breach of the obligation to purchase, it is legally a contractual penalty. For the supplier, this means they can claim it even if no damage has occurred; for the buyer, it means they can ask a court to reduce it, and the court can reduce it down to the amount of damage actually suffered by the supplier (Section 2051).

What is decisive is not how high the rate is in the contract, but how much the supplier ultimately claims. The Grand Chamber of the Supreme Court, in its judgment Case No. 31 Cdo 2273/2022 of 11 January 2023, concluded that the court assesses the reasonableness of the specific claim and also takes into account what happened after the breach. If the supplier sold the uncollected volume elsewhere, this can be an argument against the full rate – the court takes subsequent circumstances into account if they originate in the breach and were foreseeable.

That the court looks at the substance of the agreement, not its name, is shown by a dispute over compressed natural gas supplies, which the Supreme Court concluded with resolution Case No. 23 Cdo 3378/2023 of 19 December 2023. The contract called the payment a "loss of sales margin", but the courts assessed it as a contractual penalty and did not find it unreasonable.

In doing so, they weighed the significance of the secured obligation, i.e., the purchase of the agreed quantity, the ratio of the penalty to the price for full purchase, and the documented purpose of the agreement – the return on investment in the filling station. These are the circumstances that the court weighs in purchase commitments even today.

However, the benchmark from that dispute cannot be applied mechanically. The contract dated back to 2009 and was assessed under the Commercial Code, where reasonableness was evaluated solely at the time the penalty was agreed, and subsequent circumstances were not taken into account. Today, the Grand Chamber's procedure described above applies, so the case yields neither a safe percentage nor today's moderation methodology.

An agreed penalty also has another side: the supplier cannot automatically add damages from the same breach to it (Section 2050). Anyone who wants compensation for other costs in addition to the rate for uncollected volume must explicitly state this in the contract.

A price for reserved capacity is not subject to the moderation of a contractual penalty, but it is not limitless. A court will take into account the invalidity of an agreement that clearly contravenes good morals even without a motion (Section 588). In the event of an extreme disproportion between the payment and the actually reserved capacity, this path remains open to the buyer.

Change of circumstances and force majeure

A market drop in itself does not relieve the buyer of the commitment. The law provides a defense only in a narrow case: in the event of a change of circumstances that creates a particularly gross disproportion between the parties, one can demand the renegotiation of the contract – not postpone performance (Section 1765 of the Civil Code). The buyer must prove that they could not have reasonably foreseen or influenced the change.

If the parties fail to agree within a reasonable period, a court can modify or terminate the obligation. The buyer has only a short time to assert this right against the other party: the law assumes two months from the moment they must have discovered the change (Section 1766). Once the buyer has assumed the risk of a change of circumstances in the contract, they lose protection under both provisions and should negotiate a contractual adjustment of the volume instead.

It is similar with force majeure. Statutory liberation relieves the obligation to compensate for damage, not the obligation to pay (Section 2913(2)). Therefore, it does not apply to the rate for uncollected volume by itself; the buyer can only defend against it if the force majeure clause explicitly states what happens to the minimum volume.

Exit fee and statutory severance payment

Statutory severance payment (Section 1992) only works until the parties begin performance; therefore, it cannot be used in an ongoing supply relationship. Exiting the commitment thus requires its own contractual mechanism – typically termination tied to a settlement payment or a separate early termination agreement. There are several forms, but statutory severance is not among them in an ongoing relationship. Without such an agreement, a dispute will arise over the nature of the payment, and the way out that the buyer relied on may not exist.

Competition law

Competition law assesses a purchase commitment covering most of the buyer's consumption in the same way as a non-compete obligation. Under the EU Vertical Block Exemption Regulation, a commitment to purchase more than 80 percent of the relevant goods from a supplier is considered a non-compete obligation. It falls outside the block exemption if it is concluded for an indefinite period or for a period exceeding five years, and the exemption only applies if the market shares of both parties do not exceed 30 percent.

The five-year limit has its own exceptions. For example, it does not apply where the buyer sells from premises or land owned or leased by the supplier, for the period during which the buyer uses them. Commitments that merely tacitly renew after five years are also assessed separately.

However, falling outside the block exemption does not in itself mean a prohibition or invalidity. It is assessed individually whether the agreement distorts competition at all, whether it has only a negligible effect, and whether it meets the conditions for an individual exemption (Sections 3 and 4 of the Act on the Protection of Competition under Czech legislation). For a dominant supplier, an assessment under Section 11 is also required; however, take-or-pay itself does not constitute an abuse of dominance.

Risks of a purchase commitment for suppliers and buyers

How to negotiate a minimum purchase

The procedure below corresponds to typical negotiations for long-term supplies. How long and in what order to conduct it is determined by the amount of investment the purchase is meant to cover and the share of the buyer's total consumption covered by the contract – which is why the Czech legal team at ARROWS assesses each clause individually, and the procedure describes the order of negotiations, not what should be in your text.

It begins with an internal calculation, even before the first meeting. The supplier calculates what annual volume will pay off the investment and over what horizon; the buyer calculates what share of consumption they are willing to commit and what price will compensate them for the commitment. These two numbers are not spoken aloud at the meeting, but without them, the rate cannot be negotiated.

The second step is a term sheet containing both sides of the clause. Even before the contract, the volume, period, payment structure, make-up rights, availability guarantee, and exit are agreed on a single page. What is not in the term sheet is negotiated again and with more difficulty in the full contract. In parallel, the share of consumption, market shares, and duration of the commitment are verified; if it turns out that the agreement exceeds the limits of the block exemption, the volume or duration is changed now, not after signing.

Only then is the text of the clause drafted. It is usually written by the party with the stronger position, and the other comments; negotiations are conducted in trade-offs – a shorter commitment for a higher rate, a wider flexibility band for a longer duration, an exit fee for assuming the demand risk.

After signing, both parties set up purchase tracking according to the contract: who reports, when evaluations are made, and how uncollected volume is invoiced. Most take-or-pay disputes start because the parties' numbers do not match after two years. If the counterparty is based abroad, choice of law and dispute resolution venue are added; we regularly handle purchase commitments with a foreign element. The preparation and negotiation of long-term supply contracts are provided by the Czech legal team at ARROWS as part of our contracts and negotiations service.

Before you sign: three decisions for company management

The first decision is commercial: how much of the demand risk the company will assume and what it will get in return. The second is structural: will the payment for uncollected volume be a price for capacity or a contractual penalty, and the rest of the contract will adapt to this. The third is temporal: for how long and for what share of consumption can the company commit so that the agreement stands commercially and competitively.

The legal framework limits these decisions but does not replace them. A court can reduce a contractual penalty, assuming the risk of a change of circumstances excludes statutory protection, force majeure does not transfer to a payment obligation by itself, and a commitment for most of the consumption over five years falls outside the block exemption.

Take-or-pay is a specific purchasing tool, but it is subject to the same general rules of review as any other commercial contract — a complete overview of these is provided in our text on what a commercial contract review should contain.

The Czech legal team at ARROWS prepares and negotiates purchase commitments for suppliers and buyers in manufacturing, energy, and distribution, and verifies the payment structure, the impact of force majeure, and competition limits before signing. If you have a draft clause on your desk, send it to us at consultation@arws.cz and we will tell you where it binds you more than it needs to.